Income Tax

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PERSONAL COPY/ NOT FOR SALE OR CIRCULATION (Session 2012-13)

INTRODUCTION HISTORY OF INCOME-TAX: 1. India’ trust with income tax dates back to 1859 when James Wilson, Finance member in the Council of India, came to the country to establish the tax structure, a new paper currency and to remodel the finance system. 2. A bill imposing tax on profits from property, professions, trades and offices was passed by the Legislative Council of India. It received the assent of the Governor General on July 24, 1860. Lord Canning was the Governor General during 1856-58 and became Viceroy in 1858 till 1862. 3. Direct tax revenue of ` 1.35 crore was raised in 1860-61. The government’s direct tax revenue was around ` 4,50,000 crore in 2010-11. 4. The contribution of direct taxes to the GDP increased from 1.9% in 1860-61 to 6.1% in 2009-10. 5. The current tax law was passed in 1961. It is amended every year through the Finance Acts. A series of amendments had rendered the Act almost incomprehensible. 6. The exercise to simplify the Act began in 1986 when the then Prime Minister, Shri Rajiv Gandhi tasked senior Supreme Court lawyer, Dinesh Vyas to work on a new law. 7. The exercise of redrafting the law was initiated only in 1996 when a group was formed by the then Finance Minister, Shri P Chidambaram. 8. The group submitted its report in 1997, but the process got stalled again due to change in government. 9. The idea was revived again when Mr. Chidambaram returned as the finance minister of UPA government’s first innings in 2004. 10. In August 2009, Finance Minister, Mr. Mukherjee put out a discussion paper. 11. The current bill is an outcome of the discussion initiated through that paper. TAX BUOYANCY: It is defined as the percentage change in tax revenues divided by the percentage change in GDP. ASSESSMENT YEAR [Sec. 2(9)]: “Assessment year” means the period starting from April 1 and ending on March 31 of the next year. For instance, the assessment year 2012-13 which commenced on April 1, 2012, will end on March 31, 2013. Income of previous year of an assessee is taxed during the next following assessment year at the rates prescribed by the relevant Finance Act. PREVIOUS YEAR [Sec. 3]: Income earned in a year is taxable in the next year. The year in which income is earned is known as previous year and the next year in which income is taxable is known as assessment year. Previous year in the case of newly set-up business/ profession: In the case of a newly set-up business/ profession or in the case of a new source of income, the first previous year commences on the date of setting up of the business/ profession or on the date when the new source of income comes into existence and ends on immediately following March 31. However, second and subsequent previous years are always financial years i.e., from April to March. Naveen Mittal https://sites.google.com/site/srmeenav/ Page 1 of 16

PERSONAL COPY/ NOT FOR SALE OR CIRCULATION (Session 2012-13)

Financial year plays a double role: A financial year plays a double role – it is a previous year as well as an assessment year. For example, financial year 2012-13 is previous year for the income received or accrued during April 1, 2012 to March 31, 2013. Also, financial year 2012-13 is the assessment year for the income received or accrued in the immediately preceding previous year (i.e., April 1, 2011 to March 31, 2012). WHEN income of previous year is not taxable in the immediately following assessment year: The rule says the income of previous year is assessable as the income of the immediately following assessment year or in other words, it can be said that income of previous year is chargeable to tax in the next following assessment year. The above rule, however, has certain exceptions which are given below: 1. Income of non-resident from shipping: Conditions to be satisfied:  The assessee is a non-resident who owns a ship or ship is chartered by a nonresident.  The ship carries...
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